Constellation Brands is an alcoholic beverage company, traded under the symbol STZ on the New York Stock Exchange. The company had revenues of just over $6 billion in the 2014 fiscal year and a net income of $839 million (MSN Moneycentral, 2015). While revenues were up significantly over the prior year, profits were down by more than 50%. Until recently, Constellation was an importer/marketer of alcoholic beverages, but the company has recently entered into the production side of the business. As an example, Constellation has built its beer business as the importer of mainstream global brands such as Corona, Tsingtao and several smaller Mexican brands. The company did not own any beer production facilities, but recently announced the purchase of Ballast Point, a microbrewery in San Diego (Kaplan, 2015). This purchases official makes Constellation a brewing company for the first time. The deal is reported to be in the $1 billion range, a large number in light of the valuation on Ballast Point closer to $150 million when it filed an S-1 for an IPO in October, 2015 (Ballast Point Form S-1, 2015). Net asset value of Ballast Point was only $17.9 million according to the S-1. With such a high cost, there needs to be a strong strategic fit for Constellation, something that will be explored in this paper.
Rationale for Acquisitions
When a company acquires another business, it must inherently pay more than the market value of that company. This is because without a premium, there is no incentive for the existing owners of a business to sell to any one particular buyer. Thus, the buyer has to pay a premium. In this instance, a company that was set to have an IPO in 2016 somewhere in the $150 million range was purchased at a phenomenal premium over market value, an estimated 6.67 times the project IPO value, and 109 times the acquired company's 2015 net income and 70 times EBITDA. Another recent industry acquisition was that of Lagunitas, also for around $1 billion, but Lagunitas was the 8th-largest craft brewer by volume in the U.S., where Ballast Point was the 31st-largest (Brewer's Association, 2015).
To justify the premium, the acquiring company must be able to extract more value from the purchased entity than that company could extract on its own. The underlying principle...
Robert Mondavi Corporation: Strategic Analysis Robert Mondavi Corporation has dealt in wine making since 1966 and is one of the leading wine companies in the U.S. The Company is organized around three operating units: Robert Mondavi, Woodbridge and joint ventures, and other brands. Its operations are based in Napa Valley, California but have expanded to several other parts of the world such as Chile, Italy and Australia. ("Robert Modavi," 2003-Company website-
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Ironically, those opposed to smoking used the very same medium to help kill smoking in public places, restaurants, and even cars when children are present (as is the case in several states now). Smoking and tobacco products are a pariah now - no longer the universal symbol of cool, no matter how much money the companies spend on advertising. The alcohol and gambling industries, on the other hand, have clearly taken
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